01/22/2008 03:39 PM

The World from Berlin

Economy Fears 'Harbor Opportunities'

Monday's stock market crash marks the end of a wild party during which investors bid up prices without paying attention to the gathering clouds, write German media commentators. Expect more turbulence in coming weeks, but there's no reason to panic, they say.

The bulls are locked up around the world this week.

The bulls are locked up around the world this week.

European stock markets yo-yoed on Tuesday following the worst sell-off since September 11 on Monday. Shares in banks and insurers, the hardest hit in Monday's slump amid fears of a US recession and spreading financial crisis, staged a rebound. Share prices were also helped by market rumors that central banks might intervene to stabilize the market.

Those rumors were at least partially confirmed Tuesday when the United States Federal Reserve slashed the overnight lending rate by 0.75 percentage points to 3.5 percent. Fed policy makers had not been scheduled to meet about rates until the end of this month, making it the first such emergency cut since 2001. It was the largest one-time rate cut since October 1984.

Germany media commentators say the crash marks the end of a stock market party which had inflated prices and ignored the risks posed by the slowing US economy, the subprime credit crisis and surging energy prices. There's no cause for panic, but the party's well and truly over, they say.

Business daily Handelsblatt writes:

"Careful. Panic is a poor adviser. No investor can win by fleeing the market. It serves no one when investors take their profits and run. The slump in E.on and Bayer for example speaks volumes. Those declines aren't justified by fundamentals factors such as profit performance. On the contrary: The fear harbors opportunities for major share price gains in the coming months."

"Much evidence suggests that stock markets will remain turbulent in the next couple of weeks. Only really good news can haul us out of this slump in sentiment. Example No. 1: initial, tentative signs that the US economic slowdown won't be as bad as currently feared. Example No. 2: strong declines in energy prices which represent a form of economic stimulus. ... Example No. 3: strong interest rate cuts on both sides of the Atlantic ... That, combined with a rapid implementation of the US government's planned economic package, should quickly have a positive impact across the Atlantic."

"In Germany, hopes are being pinned on private consumer spending following the labor market recovery. The Germans tend to take a long time before they decide to buy cars, furniture or other consumer goods. But once they do so their high purchasing power makes an impact. That helps industry and the stock market. In the coming months we'll see far better days on the stock market."

Business daily Financial Times Deutschland writes:

"The earth is quaking in the financial world and it can't be foreseen when those tremors will be over. On the contrary. Yesterday the stock markets in Asia and Europe were hit hard, the DAX suffered one of the biggest daily losses in its history, even though some of the news that came out last week should have been reassuring to investors."

"In addition to interest rate cuts, the US is getting an economic program of around $145 billion; the most important American banks have just cleaned up their balance sheets with unprecedented writedowns in the billions of dollars. But the problem is that no one knows whether all that will be enough. There's a growing fear everywhere that the financial crisis has only just begun and that everything could get much worse."

"Being an exporting nation, Germany is strongly dependent on the world economy and the crisis has left deep scars in banks in this country. But the economic recovery here is less credit-driven than elsewhere, so that the banks' problems are likely to have a less severe impact on the rest of the economy."

"But the stock market quake is nevertheless a further warning signal for the economy. Investors and consumers will stand back until they get an idea of when the credit crisis has bottomed out."

Conservative Die Welt writes:

"The German economy is less susceptible to this crisis of confidence. Our households and companies traditionally are less indebted than those in the Anglo-Saxon world.

"In this environment the German government doesn't need to resort to the kind of vigorous measures being implemented by the US government. But it should do something to strengthen private consumers, because consumer spending is likely to become increasingly important for the economy soon. It's important that the government doesn't resort to useless economic stimulus packages. Tax cuts have a better impact."

Center-left Süddeutsche Zeitung writes:

"Financial markets had divorced themselves from the real world; share prices rose unstoppably even though risks had long been lurking everywhere. Energy and raw materials? Kept getting more expensive. America's economic upturn? Decidedly shaky. The dollar? About to tank. Everyone who wanted to could see these dangers; everyone who was half-way sober should have been careful in the last two or three years, and especially since last summer. But the stock market sometimes resembles a wild college party: Everyone's drinking, so everyone joins in. And everyone ends up being so drunk that the whole event gets out of control."

"It's quite possible that the worst is yet to come and that the stock market crash will continue in the coming months. But the crisis and the crash also have a good side. The time of excess, or unrestrained greed in the stock market and at the banks is over for now. The banks and stock market players have gambled away the trust that investors placed in them. Now they have to work hard to rebuild that trust; and you can only trust someone who's sober, and not drunk."

Conservative Frankfurter Allgemeine Zeitung writes:

"Experience shows that severe stock market falls are often followed by a rebound. That could happen again in the coming days. But whether this recovery will be lasting is a wholly different question. It can't be ruled out that the situation in industrial nations will deteriorate sharply.

"The financial market crisis which has spread from the banks to insurance companies is evidently far from over. Major banks are unlikely to collapse but the weakness of many banks is likely to make them more cautious about giving loans. That would impact economic growth.

"Much suggests that the trend in international stock markets will continue to depend on what happens in the US. Contradictory news will be reaching us from there in the weeks to come. While many companies are likely to present good results for 2007, leading economic indicators are likely to provide a disappointing outlook. At present there's no need for panic in the stock markets but unfortunately there's not much cause for optimism either."

-- David Crossland; 2.30 p.m. CET


Related SPIEGEL ONLINE links:

All Rights Reserved
Reproduction only allowed with permission